Economic divergence deepens: services boom while manufacturing shrinks, and here’s the British economy, the US economy, the New Zealand economy and the eurozone!

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CPI rose to +8.7% y/y in April vs +8.2% expected vs +10.1% previously. Core rate: +6.8% vs. +6.2% expected vs. +6.2% previously. Inflation falls less than expected and the core rate is surprised to rebound despite the fact that industrial prices eased to +3.9% vs +4.8% expected and +7.3% previously. Brexit creates a labor shortage which puts pressure on wages and makes it difficult to control inflationary pressures.

New Zealand economy

The central bank raises interest rates +25 basis points as expected to 5.50%.

The central bank meets expectations for a +25bp hike but notes that this will be the last increase needed to control inflation. The central bank’s projections indicate that interest rate cuts will begin in the third quarter of 2024. The central bank, which raised a total of +525 basis points, expects inflation to ease back towards the 2% target after a mild technical slump in the second and third quarters of 2023. It fell The New Zealand dollar rose 1.3% against the dollar.

American economy

Manufacturing PMI (May Preliminary): 48.5 vs. 50.0 expected and 50.2 prior. PMI Services: 55.1 vs. 52.5 expected and 53.6 previously.

The same pattern seen in Europe with a clear divergence between the manufacturing sector and the service sector. Manufacturing PMI returns to contraction territory after a month of expansion and services sector enters expansion territory (highest in last 13 months).

For reference, new orders in the services sector grew at the highest rate since April 2022, while in the manufacturing sector they decreased at the highest rate in the past three months. On the positive side, companies in the manufacturing sector are showing more optimism over the next twelve months. They expect a recovery in demand and are looking to invest in new product development.

eurozone economy

Manufacturing PMI (May Preliminary): 44.6 vs. 46.0 expected and 45.8 prior. PMI Services 55.9 vs. 55.5 expected and 56.2 previously. Manufacturing PMI softened in line with what was seen in Germany despite a slight recovery in France (46.1 from 45.6). The service sector is still in expansion territory, although it is declining. In this sector, the data for Germany contrasts with that for France (52.8 out of 54.6). New orders in the service sector are growing for the fifth month in a row, while in the manufacturing sector the pace of decline is accelerating. Therefore, the data again reflects the difference between the manufacturing sector and the service sector. This data may help the European Central Bank to adopt a softer stance at its next meeting (June 15th). Press release link.

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UK economy

Manufacturing PMI (May Preliminary): 46.9 vs. 48.0 expected and 47.8 prior. PMI Services 55.1 vs. 55.5 expected and 55.9 previously. The same pattern is repeated as in the European readings, with a clear divergence between the manufacturing sector and the services sector. Growth remains concentrated in the services sector while output in the manufacturing sector declines for the third month in a row. Those surveyed this fall attribute it to a poor order book and to inventory corrections by their customers. Inflationary pressures on the services side make the work of the Bank of England (the central bank) difficult, which will hold its next meeting on June 22.

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